USD College Republicans

Greed

With all the recent talk about greed on Wall Street, I thought I'd re-post this primer on greed from Milton Friedman. It's short, sweet, and insightful.

-Matt Hittle

Posted at 09:05AM Sep 23, 2008 by College Republicans in Economics  |  Comments[0]

Why did the government repair Cherry Street?

Comedian and libertarian, Drew Carey, as a fantastic series of videos on the Reason Magazine website. I'll be posting links to a few of them.

The first deals with road construction. It discusses the notion of privately-built and maintained toll roads. Most liberals view this idea with disdain- roads are supposed to be for everyone!

Ah, that's where they're wrong.

The roads Carey proposes run right alongside- or above, below, or between the lanes of- government roads. The government roads remain gridlocked while the toll road's traffic moves along at a steady pace.

HERE is the video. I recommend you watch it.

-Matt Hittle

Posted at 10:17AM Sep 14, 2008 by College Republicans in Economics  |  Comments[0]

Start drilling...

Robert Samuelson says we should start drilling. I agree.
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"It may surprise Americans to discover that the United States is the third-largest oil producer, behind Saudi Arabia and Russia. We could be producing more, but Congress has put large areas of potential supply off-limits. These include the Atlantic and Pacific coasts and parts of Alaska and the Gulf of Mexico. By government estimates, these areas may contain 25-30 billion barrels of oil (against about 30 billion of proven U.S. reserves today) and 80 trillion cubic feet or more of natural gas (compared with about 200 tcf of proven reserves)."
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What's stopping us? Samuelson hits the nail on the head:
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"What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity."
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-Matt Hittle

Posted at 05:39PM Apr 30, 2008 by College Republicans in Economics  |  Comments[0]

China BENEFITS American poor people!

For all those like Douglas who don't have the benefit of understanding economics (See his comment on my previous post), Harvard economist Greg Mankiw has an interesting post TODAY.

He quotes a paper by Christian Broda and John Romalis:
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"Over the past three decades there has been a spectacular rise in income inequality as measured by official statistics. In this paper we revisit the distributional consequences of increased imports from China by looking at the compositional differences in the basket of goods consumed by the poor and the rich in America. Using household data on non-durable consumption between 1994 and 2005 we document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor....

"we find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period. The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor.

"We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.
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-Matt Hittle

Posted at 01:49PM Apr 28, 2008 by College Republicans in Economics  |  Comments[3]

Wal-Mart has no appreciable effect on small business

Here is a letter to the New Republic by Donald J. Boudreaux, Chair of the George Mason University Department of Economics.

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Jordan Stancil alleges that "rural Americans have seen their ownership of their communities hollowed out by relentless consolidation in the retail and financial sectors" ("It's the Wal-Marts, Stupid," April 18). He laments that he and his fellow thirtysomethings from rural America are "the first generation of non-owners." To support these claims, however, he offers only personal anecdotes and impressions.

Fortunately, economists Andrea Dean and Russell Sobel have investigated this oft-told tale using data. Their findings cast serious doubt on the veracity of Mr. Stancil's allegations. For example, Dean and Sobel find that the five U.S. states with the greatest number of Wal-Mart stores per-capita have a self-employment rate identical to the self-employment rate in the five states with the fewest Wal-Mart stores per-capita. And in those states enjoying a high density of Wal-Marts, the number of businesses with nine or fewer employees is higher per-capita than in those states with a low-density of Wal-Marts. Dean and Sobel conclude that "Wal-Mart has had no significant impact on the overall size and growth of U.S. small business activity."
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I hope they print it. Maybe it will cure some New Republic readers of their anti-business sentiments.

-Matt Hittle

Posted at 07:12PM Apr 27, 2008 by College Republicans in Economics  |  Comments[2]

Quote of the week

From the Adam Smith Institute.
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"Need" now means wanting someone else's money. "Greed" means wanting to keep your own. "Compassion" is when a politician arranges the transfer.
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-Matt Hittle

Posted at 05:33PM Apr 06, 2008 by College Republicans in Economics  |  Comments[2]

A failure of capitalism? HARDLY.

Unlike the big-government types have been saying, the recent credit crisis does not deserve a growth of the bureaucracy.

I'm going to copy and paste the entire article, as it's spot on.
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Reform a la Glasgow
April 1, 2008

The financial reform unveiled yesterday by Treasury Secretary Hank Paulson is nothing if not comprehensive. No bureaucratic deck chair goes unmoved. Partly for that reason it has as much chance of becoming law as those Citigroup SIVs have of paying off for investors. Fortunately, the real reformer is already hard at work, changing the financial system right before our eyes.

His name is Adam Smith, and his relentless market discipline is already building a safer, more conservative financial system without any new regulation at all. For weeks now, structured-investment vehicles (SIVs), dodgy asset-backed commercial paper and the like have been moving onto bank balance sheets. Hedge funds are unwinding, or at least the riskier versions are. Derivative contracts are still being written, but more cautiously, and with more connection to the value of the underlying asset.

In short, the decade's great experiment in direct, unmediated lending is undergoing an Adam Smith cleansing. Amid the credit mania, Wall Street's whiz kids pioneered new ways to lend and make money without the intermediation of traditional bank capital. It was very efficient, raising money from all corners of the world, and its benefits were real. But it was also more vulnerable to panic because, if the value of the underlying assets fell, there was little cushion to absorb the losses. When the housing and mortgage mania stopped, so did the confidence in those SIVs and the panic set in.

In his wisdom, the Professor from Glasgow is now moving more of those direct-lending assets back on bank balance sheets where there is a capital safety net to write off the losses without busting the entire financial system. The ratio of direct to intermediated lending is falling, while the banks themselves are getting access to new liquidity, both private and public through the Federal Reserve's discount window. This by itself is an enormous reform, and all of it is taking place without a single vote in Congress.

Yet the politicians, in their typical election-year panic, now demand more power for the same regulators who failed to use the power they already have to prevent the current crisis. Mr. Paulson is proposing to consolidate some of the financial bureaucracy, and we're all for that. But the mortgage mania and panic weren't caused by a failure of the regulatory "structure" or a dearth of rules. They were caused by a failure of the men and women who ran those financial and regulatory institutions.

That's especially true at the Fed, which has the most to answer for in this entire episode. First, it drove a reckless monetary policy that created the subsidy for debt that fueled the housing and credit bubbles. Then it failed to call the banks under its supervision on the major risks they were taking. The Fed had every authority and tool it needed to scour Citigroup's balance sheet and question its lending practices, yet it failed to do so. And now, without a hint of irony, the Treasury and financial press declare that the solution is for the Fed to become a "Supercop." What do they think the Fed was supposed to become when it was created in 1913, after the Panic of 1907 -- a potted plant?

We agree that those investment banks now borrowing for the first time from the Fed's discount window are opening themselves to greater supervision. With the taxpayer's dime comes the burden of oversight. Among other things, this is likely to mean lower debt ratios than the 34-1 that helped kill Bear Stearns. But the best way to accomplish that is for the Fed to use the considerable power it already has rather than run a Congressional gauntlet that will surely make things worse. If Goldman Sachs or Lehman object to new reporting demands, the Fed can always deny them access to the discount window.

What will our new financial system look like once Professor Smith is done? It will be smaller for one thing, but perhaps safer. Securitization -- packaging assets and then selling them as securities -- will continue, though with more discipline. The system will be less efficient, and that's regrettable. But it may also be sturdier -- with a greater capital cushion, less leverage and better risk management -- and thus better able to ride out the next financial rough patch.

Or at least it will be if the Beltway doesn't pile on another dose of moral hazard. That's what the Fed did this month by guaranteeing that $30 billion in Bear Stearns mortgage paper for J.P. Morgan. As Yale's Jonathan Macey wrote on these pages yesterday, that action was a commitment of taxpayer dollars that almost certainly violated the Federal Deposit Insurance Improvement Act. If the government is going to commit taxpayer money to rescue banks, the proper vehicle is the FDIC. The Federal Reserve needs to maintain the quality of its balance sheet as a lender of last resort and to conduct monetary policy. Rather than rearrange the bureaucratic furniture, Congress could better spend its time digging into the Fed's Bear Stearns deal.

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Today's credit panic isn't some "crisis of capitalism" that needs a vast new layer of regulation. We are living through the aftermath of a societal credit mania fueled by excessive money creation. The regulators are as much to blame as the regulated, and Adam Smith is providing more punishment and reform than Washington ever will.
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Thanks to the Wall Street Journal for injecting some sense into the economic discussion.

-Matt Hittle

Posted at 12:06AM Apr 01, 2008 by College Republicans in Economics  |  Comments[1]

FDR's New Deal hurt millions of poor people

In response to the College Dems' recent idolization of FDR, I submit this Cato Institute article about the real New Deal.
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Democratic presidential candidates as well as some conservative intellectuals, are suggesting that Franklin Delano Roosevelt's New Deal is a good model for government policy today.

Mounting evidence, however, makes clear that poor people were principal victims of the New Deal. The evidence has been developed by dozens of economists -- including two Nobel Prize winners -- at Brown, Columbia, Princeton, Johns Hopkins, the University of California (Berkeley) and University of Chicago, among other universities.

Jim Powell, senior fellow at the Cato Institute, is author of FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003).

More by Jim Powell
New Deal programs were financed by tripling federal taxes from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and so-called "excess profits" taxes all went up.

The most important source of New Deal revenue were excise taxes levied on alcoholic beverages, cigarettes, matches, candy, chewing gum, margarine, fruit juice, soft drinks, cars, tires (including tires on wheelchairs), telephone calls, movie tickets, playing cards, electricity, radios -- these and many other everyday things were subject to New Deal excise taxes, which meant that the New Deal was substantially financed by the middle class and poor people. Yes, to hear FDR's "Fireside Chats," one had to pay FDR excise taxes for a radio and electricity! A Treasury Department report acknowledged that excise taxes "often fell disproportionately on the less affluent."

Until 1937, New Deal revenue from excise taxes exceeded the combined revenue from both personal income taxes and corporate income taxes. It wasn't until 1942, in the midst of World War II, that income taxes exceeded excise taxes for the first time under FDR. Consumers had less money to spend, and employers had less money for growth and jobs.

New Deal taxes were major job destroyers during the 1930s, prolonging unemployment that averaged 17%. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring.

Other New Deal programs destroyed jobs, too. For example, the National Industrial Recovery Act (1933) cut back production and forced wages above market levels, making it more expensive for employers to hire people - blacks alone were estimated to have lost some 500,000 jobs because of the National Industrial Recovery Act. The Agricultural Adjustment Act (1933) cut back farm production and devastated black tenant farmers who needed work. The National Labor Relations Act (1935) gave unions monopoly bargaining power in workplaces and led to violent strikes and compulsory unionization of mass production industries. Unions secured above-market wages, triggering big layoffs and helping to usher in the depression of 1938.

What about the good supposedly done by New Deal spending programs? These didn't increase the number of jobs in the economy, because the money spent on New Deal projects came from taxpayers who consequently had less money to spend on food, coats, cars, books and other things that would have stimulated the economy. This is a classic case of the seen versus the unseen -- we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.

For defenders of the New Deal, perhaps the most embarrassing revelation about New Deal spending programs is they channeled money AWAY from the South, the poorest region in the United States. The largest share of New Deal spending and loan programs went to political "swing" states in the West and East - where incomes were at least 60% higher than in the South. As an incumbent, FDR didn't see any point giving much money to the South where voters were already overwhelmingly on his side.

Americans needed bargains, but FDR hammered consumers -- and millions had little money. His National Industrial Recovery Act forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food. Moreover, FDR banned discounting by signing the Anti-Chain Store Act (1936) and the Retail Price Maintenance Act (1937).

Poor people suffered from other high-minded New Deal policies like the Tennessee Valley Authority monopoly. Its dams flooded an estimated 750,000 acres, an area about the size of Rhode Island, and TVA agents dispossessed thousands of people. Poor black sharecroppers, who didn't own property, got no compensation.

FDR might not have intended to harm millions of poor people, but that's what happened. We should evaluate government policies according to their actual consequences, not their good intentions.
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Some might consider this source biased. So, look HERE to see how the New Deal screwed over black people and HERE to read about how World War II ended the Great Depression.

There's no question the New Deal provided reform and made everyone feel happy. Unfortunately, most of it was totally unconstitutional, as parts of it were struck down by the Supreme Court SEVERAL times. Hell, FDR even wanted to pack the Supreme Court in order to ram his unconstitutional policies through! Is THAT the mark of a great leader? It did not solve the unemployment of the Great Depression.

Here's an examination of America's unemployment rate by year:

1928 4.2
1930 8.7
1932 23.6
1934 21.7
1936 16.9
1938 19.0
1940 14.6
1942 4.7%
1944 1.2
1946 3.9
1948 3.8

Unemployment isn't the whole issue- much of the problem was caused by the government itself and its response to the stock market crash.
Finally, many economists think that the New Deal actually WORSENED
the Great Depression:

-Matt Hittle

Posted at 10:30PM Mar 25, 2008 by College Republicans in Economics  |  Comments[1]

A great example of the market at work

The market strikes again.

I thought that this was very interesting. It is the culmination of competition and private enterprise unfolding before our eyes. Only a few short years ago, cellular phones were available only to the ultra-rich in First World countries. Now, a middle-class citizen in Bombay can buy one.

This has implications beyond cell phones, though. Think health care. If it took less than a decade to provide nearly anyone in the First World with a cell phone- and providing phones for the second and third world not far behind- how long would it take to provide nearly everyone in the USA with health care?

With increased competition, anything is possible. I hope that the next president realizes that compeition is vital, and cuts bureaucracy and waste before instituting an unfair, short-sighted universal health care plan.

-Matt Hittle

Posted at 09:10AM Feb 14, 2008 by College Republicans in Economics  |  Comments[2]

Gaps between rich and poor

Mankiw quotes a report on the gap between rich and poor. The study comes from an op-ed in the New York Times by W. Michael Cox, the chief economist of the Dallas Federal Reserve. Mr. Cox came to USD earlier this year, giving an excellent presentation in Farber Hall.

Democrats, especially the USD Dems during the recent debate with the College Republicans, consistently harp on this statistic. It seems now that they've got no leg to stand on:
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"if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1....

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1."
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You can find the original study from a New York Times op-ed HERE.

Here's one quote that the Democrats need to read:
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"Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society."
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Here's another that tells us why free trade is good:
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"There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest."

Posted at 09:34PM Feb 10, 2008 by College Republicans in Economics  |  Comments[4]

The real story on the national debt

Lots of Democrats- including the USD Dems during Tuesday's debate- have been deriding President Bush for the $3 trillion budget this year.

Fortunately, Mankiw comes to the rescue, yet again. Well, technically, it's Mankiw's friend who works at the White House. Mankiw agrees with his analysis, though.

I'm no econonerd, as Mankiw so properly put it, but I can comprehend what's being said. I would post snippets, but it's midnight and I need to get to bed! Basically, it proves among other things that the Democrats are using scare tactics and misinformation about the national debt. Check it out.

-Matt Hittle

Posted at 12:12AM Feb 08, 2008 by College Republicans in Economics  |  Comments[8]

Dubner and Levitt on unintended consequences

Stephen J. Dubner and Steven Levitt, authors of Freakonomics, have a great article in the New York Times Magazine today.

They basically discuss policies that are meant to help people, but end up backfiring. Milton Friedman would argue that every such policy has backfired, but Levitt and Dubner don't go that far:

"So does this mean that every law designed to help endangered animals, poor people and the disabled is bound to fail? Of course not. But with a government that is regularly begged for relief — these days, from mortgage woes, health-care costs and tax burdens — and with every presidential hopeful making daily promises to address these woes, it might be worth encouraging the winning candidate to think twice (or even 8 or 10 times) before rushing off to do good. Because if there is any law more powerful than the ones constructed in a place like Washington, it is the law of unintended consequences."

Unfortunately, most Americans don't realize the truths contained in this article. They think that throwing money at a problem will automatically fix it. Then, politicians listen to these constituents and make bad policy in order get reelected. The cycle needs to stop.

-Matt Hittle

Posted at 12:11PM Jan 20, 2008 by College Republicans in Economics  |  Comments[0]

Bush should follow Friedman, not Keynes

Bruce Bartlett has an excellent op-ed today in the Wall Street Journal.

Bartlett says that a one-time tax rebate, part of Bush's economic stimulus plan, won't work now because it didn't work in the past.
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"Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.

Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Friedman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut -- which would change peoples' concept of their permanent income -- of similar magnitude."
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Unfortunately, The New York Times still subscribes to the old Keynesian way of thinking.

I hope that Bush and his economic advisors wise up and realize that only permanent changes in the tax system rather than temporary rebates have the possibility of nudging us away from recession.

-Matt Hittle

Posted at 11:08AM Jan 19, 2008 by College Republicans in Economics  |  Comments[0]

US not among freest economies

The freest economies in the world are in Asia and Europe, says a new study.

The reason? Democrats and big-government Republicans who push tax increases and restrictions on trade.
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While Europe was moving more greater economic liberalization, the prevailing sentiment in the United States was protectionism, said Mary Kissel, the editorial page editor of the Wall Street Journal's Asian edition.

"We have Democratic candidates coming out against free trade agreement and for higher taxes," she told reporters. "On the Republican side too, there's talk of protecting American jobs. Meanwhile, you have a Congress which is considering a clutch of bills aimed at punishing China for exporting too much to American consumers."
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The "protect jobs" mantra is bunk. Don't believe the Democrats' bull. Trade is good.

-Matt Hittle

Posted at 08:45AM Jan 15, 2008 by College Republicans in Economics  |  Comments[0]

A great book you should read

Yesterday, I picked up humorist PJ O'Rourke's new book "On the Wealth of Nations."

The book distills and discusses- with incredible candor and wit- the massive tome that is "An Inquiry into the Nature and Causes of the Wealth of Nations," by Adam Smith.

I urge you all to pick it up or borrow it from a library. I'm only halfway through, but it has already skyrocketed to my top five books.

-Matt Hittle

Posted at 01:06PM Jan 06, 2008 by College Republicans in Economics  |  Comments[0]

Pure brilliance!

This YouTube clip is Milton Friedman on a 60s TV show "Open Mind."
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It is absolutely brilliant. It's worth the 30 minutes to watch it.
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I urge all who think libertarians / conservatives are heartless to take the few minutes to watch it.
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Matt Hittle

Posted at 09:32AM Dec 27, 2007 by College Republicans in Economics  |  Comments[0]

Friedman quote-a-mania

Reason Magazine, my favorite free market periodical, has a great article from Feb. 2007 about Milton Friedman.
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Essentially, it details some quotes given by Friedman to Reason when he contributed regularly.
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My favorite:
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"I think a major reason why intellectuals tend to move towards collectivism is that the collectivist answer is a simple one. If there’s something wrong, pass a law and do something about it."
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It's always that simple for the socialists/liberals/leftists/collectivists isn't it? Have the government pass a law if something doesn't go our way! What a horrid mindset. Let's hope people don't forget Friedman's words.
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-Matt Hittle

Posted at 03:57AM Dec 18, 2007 by College Republicans in Economics  |  Comments[0]

The difference between left and right

Today, Greg Mankiw has an excellent post regarding the difference between the left and right on policy prescriptions.
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This is my favorite part (paraphrased):
The right assumes most people are rational and making mistakes will help them learn.
The left assumes people are irrational and must be saved from their mistakes. (ie: the subprime bailout)
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-Matt Hittle

Posted at 08:22AM Dec 13, 2007 by College Republicans in Economics  |  Comments[0]

Mankiw blasts Frank

Today, Mankiw blasted Cornell economics professor Robert Frank because of Frank's recent NYT op-ed.
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Take a look!
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-Matt Hittle

Posted at 04:11PM Dec 09, 2007 by College Republicans in Economics  |  Comments[0]

How to be a redistributionist

I've got a ton of posts up about Mankiw, but he finds such good info!
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This is an old post from October detailing redistributionist policies.
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http://gregmankiw.blogspot.com/2007/10/how-to-be-redistributionist.html#links
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-Matt Hittle

Posted at 02:52PM Dec 01, 2007 by College Republicans in Economics  |  Comments[0]

Economic Planning: Bad for everyone

Here's a relatively long piece- but it's very good. It's by the late FA Hayek, a famous Austrian economist and Nobel Laureate, (http://mises.org/story/2782).
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I urge you to read the entire thing, when time permits!
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"In recent years this desire to apply engineering technique to the solution of social problems has become very explicit;[1] "political engineering" and "social engineering" have become fashionable catchwords which are quite as characteristic of the outlook of the present generation as its predilection for "conscious" control; in Russia even the artists appear to pride themselves on the name of "engineers of the soul," bestowed upon them by Stalin. These phrases suggest a confusion about the fundamental differences between the task of the engineer and that of social organizations on a larger scale which make it desirable to consider their character somewhat more fully."
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-Matt Hittle

Posted at 08:07AM Nov 30, 2007 by College Republicans in Economics  |  Comments[1]